57704 sc high missing global state update in forcerepay leads to permanent freezing of unclaimed yield

Submitted on Oct 28th 2025 at 10:07:53 UTC by @Diavol0 for Audit Comp | Alchemix V3

• Report ID: #57704

• Report Type: Smart Contract

• Report severity: High

• Target: https://github.com/alchemix-finance/v3-poc/blob/immunefi_audit/src/AlchemistV3.sol

• Impacts:

  • Permanent freezing of unclaimed yield

Description

Summary

The _forceRepay() function in AlchemistV3 contains a critical accounting bug where it correctly decreases the user's account.earmarked during liquidation but fails to decrease the global cumulativeEarmarked variable. This synchronization failure causes the global earmarked accounting to become permanently inflated with each liquidation event, progressively restricting the protocol's ability to earmark new debt and ultimately freezing users' unclaimed yield in the Transmuter redemption system.

Root Cause

AlchemistV3's earmark mechanism operates with two distinct synchronization models:

1. Asynchronous Allocation (earmark increases):

• Global cumulativeEarmarked updates immediately when _earmark() is called

• User account.earmarked updates later when _sync() is triggered

• Creates temporary state: cumulativeEarmarked >= sum(account.earmarked)

2. Synchronous Operations (earmark decreases):

• For direct repayment operations (repay() and _forceRepay()), the critical invariant is:

  Delta(cumulativeEarmarked) == sum(Delta(account.earmarked))

• When users directly repay earmarked debt, user-level and global-level reductions must occur in lockstep

The bug violates the synchronization invariant in _forceRepay():

Correct Implementation in repay() (Lines 521-526):

uint256 earmarkToRemove = credit > account.earmarked ? account.earmarked : credit;
account.earmarked -= earmarkToRemove;

// ✓ Correctly updates global state
uint256 earmarkPaidGlobal = cumulativeEarmarked > earmarkToRemove ? earmarkToRemove : cumulativeEarmarked;
cumulativeEarmarked -= earmarkPaidGlobal;

Buggy Implementation in _forceRepay() (Lines 760-762):

uint256 earmarkToRemove = credit > account.earmarked ? account.earmarked : credit;
account.earmarked -= earmarkToRemove;

// ✗ Missing global state update
// cumulativeEarmarked should decrease here but doesn't

Impact Analysis

Immediate Impact:

1. Global Accounting Inflation: cumulativeEarmarked becomes inflated by the earmarked amount repaid in each liquidation

2. Earmark Capacity Reduction: liveUnearmarked = totalDebt - cumulativeEarmarked is understated, limiting future earmark operations

3. Transmuter Redemption Impairment: Users' yield cannot be properly earmarked and redeemed through Transmuter

Cumulative Effect:

• Each liquidation of earmarked debt exacerbates the problem

• Inflation accumulates: after N liquidations with total earmarked E, global state is inflated by E

• No self-healing mechanism exists

Ultimate Consequence: When cumulativeEarmarked approaches totalDebt:

• liveUnearmarked ≈ 0

• New earmark operations become impossible

• Unclaimed yield is permanently frozen - users cannot redeem through Transmuter

• Requires protocol upgrade to restore functionality

Link to Proof of Concept

https://gist.github.com/6newbie/698cbf05723ff5686c31b3d60d171813

Proof of Concept

Step-by-Step Reproduction

Prerequisites:

• AlchemistV3 contract deployed and initialized

• Transmuter contract operational

• User positions with earmarked debt exist

Steps:

1. Setup Initial State

- User creates position with collateral and borrows debt

- Transmuter redemption is created to trigger earmarking

- Advance blocks to earmark 60% of user's debt

- Initial state:

* totalDebt = 180e18

* cumulativeEarmarked = 108e18

* User earmarked = 108e18

1. Trigger Liquidation

- Manipulate yield token price to make position undercollateralized

- Call liquidate(accountId)

- This internally calls _forceRepay(accountId, 108e18)

1. Observe Bug

After liquidation:

- User earmarked: 108e18 → 0 (✓ correctly reduced)

- totalDebt: 180e18 → 72e18 (✓ correctly reduced via _subDebt)

- cumulativeEarmarked: 108e18 → 72e18 (✗ SHOULD BE 0!)


Bug Evidence:

- Expected cumulativeEarmarked: 0 (108e18 - 108e18)

- Actual cumulativeEarmarked: 72e18

- Inflation: 72e18

1. Verify Impact on Future Earmarks

- liveUnearmarked = totalDebt - cumulativeEarmarked

- With bug: 72e18 - 72e18 = 0

- Expected: 72e18 - 0 = 72e18

- Result: Future earmarks are completely blocked (0 capacity)

Automated Test Verification

A comprehensive test case has been implemented at:

• File: src/test/AlchemistV3.t.sol

• Function: testBug_ForceRepay_Missing_CumulativeEarmarked_Update() (Lines 3936-4066)

Run test:

forge test --match-test testBug_ForceRepay_Missing_CumulativeEarmarked_Update -vv

Expected output:

[FAIL: BUG: cumulativeEarmarked should decrease by earmarked amount but it doesn't!]

  

Logs:

=== Before Liquidation ===

User earmarked: 108000000000000000010800

Global cumulativeEarmarked: 108000000000000000010800

  

=== After Liquidation ===

User earmarked: 0

Global cumulativeEarmarked: 72000000000000000007200 ← Should be 0

  

=== Bug Evidence ===

Expected: 0

Actual: 72000000000000000007200

Inflation: 72000000000000000007200

The test demonstrates:

• ✅ User-level earmarked correctly reduced to 0

• ✅ Total debt correctly reduced by 108e18

• ❌ Global cumulativeEarmarked incorrectly retains 72e18 inflation

Comparison with Correct Implementation

Correct behavior (repay function):

User calls repay():

- account.earmarked -= X ✓

- cumulativeEarmarked -= X ✓

- Both synchronized

Buggy behavior (_forceRepay function):

Liquidation calls _forceRepay():

- account.earmarked -= X ✓

- cumulativeEarmarked unchanged ✗

- Synchronization broken